The IRS has wide powers of collection of tax. One of the first things they do is to file a lien. Actually, by law, lien attaches to all the properties of the tax payer once a federal tax demand is raised. What this means is that the IRS has a right over these properties to the extent of the tax dues.
However, to make the lien effective, it needs to be filed in the public records which can be the local county office where you file tax returns. Normally this is done if the IRS considers that you are neglecting your tax dues.
The filing of lien has very adverse implication for the tax payer. It has the effect of serving a public notice particularly on the creditors that the properties of the tax payer are now encumbered with the tax debt. As a result, the credit rating of the tax payer takes a nosedive.
Normally, all credits are advanced against security of the assets owned by a person whether or not the person is actually required to mortgage a property in favor of the creditor. The filing of the tax lien has the effect of announcing to the world at large that the person is a tax defaulter.
No creditor will like to lend to a person knowing that the properties of the person are not free from debt and therefore his loan is not secure. Getting fresh loans will become very difficult for such a person.
What is the solution? Of course, the best thing to do is to clear the tax debt immediately and get the lien released. This can be done through payment or through adjustment of pending refunds. The IRS is obliged to release the lien within thirty days of the full tax dues including interest and penalty being paid.
If it is not possible to pay up the entire dues in one lump sum, the tax payer can make request for payment in installments. Once an installment agreement is reached, it may be possible to request for release of lien. However, this request may not be granted as the IRS likes to keep the lien as security of the tax debt.
Nevertheless, it may be possible to negotiate this relief if the installments are paid through payroll deduction from wages or electronic clearance from the bank account. This is because the consent given for such automatic deduction becomes a guarantee for future installment payments.
Another option is to give a bond to the satisfaction of the IRS guaranteeing the payment. This can be in the form of a bank guarantee or any third party guarantee. It should also be possible to offer a scheme of payment through sale of part of the property or one of the properties.
The IRS may release the lien if they are convinced that the sale will result in the collection of tax. It is also possible to get the lien on a property subordinated to another lien to access further credit.
The key lies in negotiating a bonafide scheme of tax payment with the IRS. For more information, see Publication 1450 of the IRS available on the IRS's website. If the thought of trying to fight the government scares you, you should contact a professional IRS tax negotiator and have them remove the lien for you.
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